Government officials commonly face the difficult problem of having to make important policy decisions in the absence of perfect information about the ultimate impact of their decisions. Often, those affected most directly by government policy have better information than the government about the likely impact of policy decisions. However, those affected by public policy are often reluctant to share their superior information with the government, because doing so can jeopardize their financial interests. The purpose of this research is to examine the optimal design of public policy in such settings, and to analyze how government policy makers can best elicit and employ superior information held by individuals and firms who will be affected by government policy. A number of specific settings will be examined. First, the question of whether and how the government should identify and provide special treatment or protection for particular domestic industries in order to improve their international competitiveness will be explored. Second, the optimal design of government policy to enhance environmental quality will be examined. The proper use of tradeable resource rights will receive special attention. Third, optimal regulatory policy for public utilities will be investigated. Fourth, alternatives to traditional regulatory policy will be analyzed.
